Disability insurance basics

Disability insuranceDisability insurance Insurance that gives you income in case you get sick or hurt and can’t work.+ read full definition provides a monthly cash payment to you if you are unable to work because of illness or injury. The payments are taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition free if you pay the premiums yourself. If your employer covers the premium cost, any payments you receive are taxable.

Disability insurance is designed to replace a portion of your lost income – so you can only buy disability insurance if you have employment or self-employment income.

Why disability coverage is important

If you become seriously ill or suffer an injury, you may not be able to earn an income while you are recovering. Since you likely rely on your income to maintain your lifestyle, a temporary or permanent loss of income could be financially devastating. And because disabilities can last for months or even years – having guaranteed income while you’re off work can be critical.

Your chances of having a disability are higher than you might think. According to Statistics Canada, about 3.8 million people, or 13.7% of Canadians aged 15 and older, reported being limited in their daily activities because of a disability in 2012. And nearly one-half (48.5%) of those reporting a disability described their disability as being severe or very severe.

Why workplace coverage may not be enough

You may already have disability insurance through your group benefits plan at work, but group disability plans can be more restrictive in terms of the percentage of income they replace and the definition of disability.

If you get coverage through work, check it carefully. You may want to supplement it with an individual disability policy that tops up your workplace coverage or provides the coverage you need if the definition of disability is too limited.

Another benefitBenefit Money, goods, or services that you get from your workplace or from a government program such as the Canada Pension Plan.+ read full definition: if you switch jobs and move to an employer that doesn’t offer disability insurance coverage, having an individual policy ensures that you always have this important protection in place.

Take action while you’re healthy

Apply for disability insurance while you are still healthy. If your health deteriorates or you’re disabled in an accident, an application for disability coverage will often be denied or you may only qualify for more limited coverage. And it will likely cost more.

The odds of a disability occurring are higher than the odds of suffering a premature death. For this reason, disability insurance can be more expensive than life insuranceLife Insurance Insurance that pays cash to your family or other beneficiary after your death. This can give them income and help pay your funeral and other final costs.+ read full definition – and more difficult to qualify for if you’ve had any health issues. You can minimize your cost and increase your chances for acceptance by applying at a younger age.

Warning

Workplace disability coverage may not provide the protection you need. Check your workplace coverage carefully and consider supplementing it with individual disability insurance.

Warning

Group disability plans can be restrictive – consider supplementing it with an individual disability policy.